What the 2004 WDR Got Wrong

The three points made in my previous post—that services particularly fail poor people, money is not the solution, and “the solution” is not the solution—can be explained by failures of accountability in the service delivery chain. This was the cornerstone of the 2004 World Development Report, Making Services Work for Poor People. In a private market—when I buy a sandwich, for example—there is a direct or “short route” of accountability between the client (me) and the sandwich provider. I pay him directly; I know whether I got a sandwich or not; and If I don’t like the sandwich, I can go elsewhere—and the provider knows that.

For services such as education, health, water and sanitation, societies have eschewed private markets, and decided that they should be financed and/or provided by the state. The accountability then becomes an indirect one, where citizens influence politicians for the services they want, and the politicians or policymakers in turn have to influence service providers (teachers and doctors, for example) to deliver the services. There are now at least two places where accountability can break down. First, poor people may not have sufficient “voice” to influence politicians, so the lion’s share of public health spending goes to urban hospitals which the non-poor demand. Secondly, policymakers may not be able to hold providers accountable; absentee teachers and doctors are the result. Frustrated by the failure of the “long route of accountability”, poor people often resort to the short route, by sending their kids to private schools or private doctors, by buying water from tankers, etc.

Although the accountability triangle has become a workhorse in the service delivery field, ten years on, I see three shortcomings to the framework.

1. The two links of the long route are not symmetric. Since there are two places that accountability can break down—“voice” and the compact between policymakers and providers—it is tempting to work on both. From cameras in the classroom to bonus pay for showing up, people have proposed numerous ways to make providers accountable to policymakers. But if the underlying politics is dysfunctional, fixing the compact won’t work. An experiment in Rajasthan that introduced time-stamp machines to reduce nurses’ absenteeism failed when, the day before the program was to start, the machines were vandalized. A randomized control trial in Kenya had two groups—the government and an NGO—implement a program of contract teachers. Student learning outcomes improved for the NGO-run program only. The authors attribute the difference to the fact that the government-run program was captured by powerful teachers unions who delayed its implementation. On reflection, this point is not surprising. Why would we think that a politician who is not interested in delivering services to poor people would allow programs that strengthen provider accountability? Jim Robinson describes such programs as “politician-proof public policy.”

The implication is that, before trying to fix the incentives for providers, we need to work on the incentives facing politicians.But how?There are no easy answers, but information campaigns and citizen engagement can play a role, as discussed in several sessions of the WDR2004 Tenth Anniversary conference.

2. The only short route is the market. The market is certainly an example of the short route, as mentioned above. But other instruments, such as vouchers or citizen report cards, have been referred to as cases of the short route, including in the 2004 WDR. But a voucher program still requires a politician to decide that students should receive vouchers (rather than teachers or schools receiving the money directly). Once the decision has been made, then vouchers in the hands of students or their parents act the way market instruments do. Citizen report cards, while they provide clients with information about the quality of providers, do not strengthen clients’ ability to hold providers accountable unless the clients have a choice among providers, and a provider’s remuneration depends on clients’ choosing him (as with vouchers).

By not coming clean and saying in the 2004 WDR that the only short route is the market, we may be overlooking a host of distortions associated with markets—asymmetric information, oligopolies, etc.These could make the short route less attractive.Inasmuch as poor people are resorting to the market for services that government is failing to deliver, we should understand how these markets work and, if necessary, explore ways of regulating them to improve services.The work on education markets in Punjab, Pakistan is a fruitful step in this direction.

3. Changing incentives v. changing norms. The WDR accountability framework suggests that teachers and doctors are absent because (i) they get paid whether or not they show up for work; (ii) they have lucrative opportunities outside; and (iii) they have political power to maintain the status quo. But teachers and doctors in Sweden and France face the same incentives—and show up for work every day. The reason could be that providers in these countries behave according to a set of professional norms. Absenteeism hurts your reputation among your peers; and politicians will be blamed if teachers and doctors provide poor services. Meanwhile, in South Asia and Africa, provider absenteeism is accepted among peers, and even among the public. The question is: how do societies move from one set of professional norms to another? I am looking forward to this year’s WDR, “Mind and Culture”, for some answers to this question.

In sum, the 2004 WDR’s main contribution was the accountability framework. But with each leg of the triangle, there are some shortcomings—which is a good reason to have had a conference.

Comments

"But teachers and doctors in Sweden and France face the same incentives—and show up for work every day"

Very good post. Concerning this issue: we all respond to incentives (market), values (culture) and orders (hierarchy), or to any combination of these. This is an old idea, certainly not mine. Designing the right public policy in Africa requires to address specific elements of every society.

Jose, thanks for your comment. You're right that incentives, values and orders affect service delivery. The question is: which of these can you change in order to improve outcomes? We have traditionally thought that incentives are the easiest to change. But sometimes changing incentives without changes in culture and order has little impact. So perhaps we should start thinking about ways in which culture could be changed, as the experience with role models, soap operas and the like suggest. Shanta

You are absolutely right Shanta, the short route is the market and over 50 years ago Kenneth Arrow showed that this is not the route to go for health. This is because of the fundamental market failure caused by huge asymmmetries in information between suppliers and consumers of services. Buying health services is definitely not like buying sandwiches where on viewing (and maybe squeezing) the product you can make a fairly reasonable judgment about its quality. You can also make rational decisions when asked: do you want brown or white bread, pickles, mayonnaise etc.

Now compare this when you visit a doctor selling services in a health market and you have a strange abdominal pain. When she insists on a bank of expensive tests how can you risk turning any of them down? Likewise how on earth can one judge the effectiveness of the range of little pills offered up as a cure? It's therefore very easy to get ripped off.

Given this vulnerability, sick and desperate people are often very bad purchasers of healthcare and this is why across the globe, states step in because they can do a better job. That's how we end up with the longer route. I am not saying by any means that states always perform will in this area and the WDR highlighted many examples of the long route failing for a variety of reasons. However at all income levels there are scores of examples of state governed agencies doing a great job in purchasing health services efficiently and equitably for their populations.

On the other hand I can't think of a single example, in health, of where the short route, ie the market, has worked. It's a pity that WDR 2004 didn't say this more clearly but it's great that, through the recent Lancet Commission, the authors of WDR 1993 are saying this loud and clear.

Rob: Thanks for the comment. The problem of asymmetric information, which you highlight, is several market failures in health, especially in poor countries. The others are: (i) public goods and externalities, such as immunization and the draining of swamps to reduce malaria; and (ii) insurance market failures (Akerlof, Rothschild-Stiglitz, etc.) If governments can address these two, they can have huge impacts on the welfare of poor people. Unfortunately, they don't. The public goods portion of public health spending is appallingly low (usually about 10-20 percent). Most of the spending goes for hospitals in urban areas. Why? Because everybody--rich and poor--need catastrophic care. Lacking insurance markets, people lobby for having publicly-funded hospitals nearby. Not surprisingly, the non-poor, who have greater political power, are able to make sure that these hospitals are located where they live. So governments' failure to tackle the insurance market failure leads to under-spending on genuine public goods and poor people being left out of catastrophic insurance. These are the first-order problems in delivering health services to poor people. Regards, Shanta

Thanks Shanta for this post. I'll contribute to the debate around the following statement:
"But a voucher program still requires a politician to decide that students should receive vouchers "

I think that even if the politicians want to decide in such a way, they should find a solution to the opposition of unions and there is a role of competition here. I propose that governments should launch a special 3-5 years program putting into competition three types of schools:

- 1st case (private school): give vouchers to poor people to access to a private school.
- 2nd case (public school): raise the wages of teachers and putting in place a control system for absenteeism.
- 3rd case (public school): normally managed public school with no special action.

At the end of each year, a selection of students from each school will pass the same exam and corrected by the same teacher. A final detailed evaluation of the results and the costs of each case should be done and published to the public. This evaluation should be the basis for discussion between the government, the unions and representatives from the civil society.
And here, the World Bank could play a role in supporting civil society (TA and Funding) to be able to supervise the efficiency of the reform and in helping the government to fund the program.

Mehdi: Thanks for the suggestion. While I like the idea of running a controlled experiment to overcome the opposition of unions, I think the experiment should permit a true comparison. We can't give vouchers just for private schools. The point about vouchers is that students have a choice among schools, be they public or private, and the fact that schools receive the money only if students enroll there creates an incentive for the schools to improve the quality of service delivery. So we can have one experiment where we introduce vouchers in some (randomly chosen) districts and in others, continue to have government spending go directly to the school. And then compare student performance between the two sets of districts (this is similar to experiments done in Bogota,Colombia, Chile, Bangladesh, etc.) A second possibility is to put in place a control system for absenteeism (again, randomly, possibly combined with a bonus for teachers for being present, and compare the results with areas where this system was not in place. This is similar to the experiments with cameras in Rajasthan, or the time-stamp machines, or even contract teachers. Again, a pairwise comparison between the control and treatment groups could yield insights here. But, as I mentioned in the blog post, both the time-stamp machines and contract teachers experiments were undermined by politics. So we need to find experiments that we can implement successfully, and show the results of these to the unions. Shanta

Thanks Shanta for this good post. I would actually go with the last point on changing the mind set or culture. This for me is the most critical issue not just in terms of teachers and doctors but politicians as well. Transforming the culture of selfishness at the expense of the nation/the poor and so forth, into a culture of selflessness that benefits the nation/the poor, is the challenge of our time. Where do you start from? Have my views but I also look forward to WDRs mind and culture report. It will make for a fascinating reading!

Your latest blog post (series) is an excellent one Shanta. I wonder though if there aren’t more alternatives than the ones you list at the end of your post which may work even with poorly motivated politicians and poorly informed / disempowered citizenry which may be faster than seeking to modify the “culture/mindset”:

1.Better design of the product / service so that price is a sufficient statistic (as it is for a sandwich). Perhaps in healthcare, Managed Care is an idea where the ⍊product” is: “insurance + healthcare” by a single / integrated provider – perhaps markets become better solutions then [Kaiser Permanente].

3.Purchaser-provider splits – so that market principles can be brought into government provision [Thailand, UK, India – RSBY/ RAS]

Would be eager to hear what you think about these ideas. My own sense is that in many of the sectors you list they could work with the possible exception of education because the “product” is very fuzzy and ill-defined.

Nachiket: Thanks for the thoughtful comments. I agree that we can make progress with better designed policies and institutions, such as pricing, independent regulators and separation of purchaser from provider. But if the underlying politics is dysfunctional, it is sometimes difficult to get these reforms implemented. Quite simply, people resist having to be more accountable than they are today (less politely, people don't like to lose their rents). If they are sufficiently organized, they can resist these reforms. Health insurance in Kenya was resisted by doctors. It's difficult to get truly independent water regulation in India (as a result, no city in India has 24x7 water). And the textbook example of purchaser-provider split is contract teachers. My sense is that all these reforms you propose are attempts to "trick" the people whose rents are going to be undermined into not noticing that this is the case. They are variants on "politician-proof public policy". They may still work, but you have to be lucky. Shanta

Shanta, While I agree that there is often “asymmetry” in the accountability chain, I wonder if you can categorically say “if the underlying politics is dysfunctional, fixing the compact won’t work. “ While recognizing that the two links of the long route are not usually symmetric, the fact that they are "interconnected" gives reform a chance by engaging either on the voice or compact side if there is a tactical opening -- or in the words of the WDR “strategic incrementalism.” For example, in Bangladesh, in response to the arsenic crisis, we supported a change in the compact by adding a small level of discretionary fiscal transfers from central to local government. The amount was too small to disturb the overall political structure of the way resources flowed between different tiers of government -- i.e. the underlying dysfunctional politics was preserved -- but this (very) incremental autonomy of local councils enabled the triggering of citizen engagement and information campaigns – the effectiveness of the latter being dependent on the former. This small window created by a crisis was self-reinforcing. Here the critical factor was not the asymmetry in the accountability chain, but the inter-connection between voice and compact – however weak the connection can be in practice.

As I look back at the WDR, however, I feel we underemphasized the nature of social failure. We recognized that if markets and the state fail poor people, we have supported the delivery of public and private services around communities, assuming that social relations within a community would preserve accountability. But, communities are a reflection of their societies and in this context the “gangs of New York” syndrome – capture by a particular social group -- is very likely. While we have often looked at delivery choices by making a judgment call of whether market or state failure is more costly, we have not assessed the relative cost of social failure.

Junaid: Thanks for the insightful comment. Yes, it is possible to do something "small" with the compact when the politics is dysfunctional (and, when it works, scale it up), as your Bangladesh arsenic case shows. But I still think it's a case of "politician-proof public policy". The intervention was small enough that the politicians didn't notice, nor did they anticipate that it could grow to a scale that undermines their rents. Sometimes, the political system is so weak and chaotic that it is possible to introduce reforms in the compact. Contracting out secondary education to the non-state sector in Bangladesh is an example. When the government saw that the innovation was working, they decided to implement it nationwide. We should continue to look for such opportunities, but we should be clear about what we're doing (tricking the politicians into not noticing). Since such opportunities are rare, we should devote more attention to changing the incentives facing politicians. Shanta

Shanta, thanks for conducting an important debate and interesting insights.

I have the following comment:
I am not convinced that all Poor have the 'opportunity' or 'capacity' to follow the shorter route. These are the two dimensions of poverty that one has to pay attention to - in order to push up 40% of the people that are below the poverty line. It is important to understand who are the poor who can resort to private schools for their kids. Yes, the Poor have been paying high price for water from tankers. On this basis, can we conclude that market channels are open to the private sector to meet all water supply needs? Due to the very characteristics of the water sector, even cost recovery from the Users other than the Poor has been difficult. The Poor pay high prices for 'drinking water' alone as they may be able to afford small quantities. Most water projects designed by the Bank have suffered with this optimism. The Poor will keep meeting their needs by employing their household labor - mostly girls fetching water and not going to schools. Yes public accountability plays a role here. Water supply, in most cases will be under public ownership due to the needs of economies of scale although some interventions of the private sector are warranted to promote efficiencies. The point is, should we not treat water supply different from education and health service delivery so as to develop clarity on what incentives would work for effective water service delivery? Water supply link with natural resource aspect and huge infrastructure investment needs against tthe 'urgent social need' adds complexity to the debate.

I realise this is Shanta's blog but I am taking the liberty of commenting on your post since it also relates to an earlier post of mine on this blog (I hope that is okay Shanta). I feel that use of "market mechanisms" and "private sector involvement" are different ideas from "cost recovery" and from each other. I meant that water (for example) is a "market friendly" product in sense that price is a sufficient statistic and that one could therefore allow the private sector to take charge of its delivery (or use purchaser-provider splits within government) and either allow them to recover costs directly from the entire population; pay them directly; or give poor people vouchers / direct cash-transfers to help them pay for the water. Health is a lot more complex but potentially if one could use a "managed care" type product design once could argue that price once again is a sufficient statistic and a similar approach could be adopted using conditional cash transfers / insurance arrangements of some type (this is very different from simply doing insurance for hospitalisation and paying hospitals on a fee for service or even a DRG basis). In both these examples therefore there just may be an alternative to the "long-path" and the "longest/impossible path" (changing cultures and mindsets) through the use of "market-like" structures (such as purchaser-provider splits) even with government provision.

From my limited understanding of it, education simply does not fit this neat structure and without "long path" interventions, instruments such as vouchers may produce very distorted supply and consumption patterns and tools such as purchaser-provider splits (contract teachers and such like) would also have the same effect.

I think this distinction is important because it may help sharpen "long" path efforts and focus them only on a few sectors like education and potentially make it easier to make change happen and in a shorter time frame while using other potentially shorter pathways to address accountability / delivery problems in other sectors. Otherwise I worry that we will make no progress at all and the poor (and the rich and the middle class in cases like health) will continue to experience denials of service until the day when all the developing countries acquire the cultures and mindsets of the Scandinavians.

First, Nachiket, thanks for replying to Shaeena's comment. This is exactly the kind of exchange I like to encourage on the blog. The only thing I would add is that we should not in general expect poor people to take the short route. Unfortunately, this is the route they are forced to take because of failures in the long route. Poor people are forced to buy water from private tankers at 5-16 times the meter rate. They take their sick children to (possibly unqualified) private sector doctors because there is no one at the public clinic. This is not a desirable outcome. But changing it requires making the long route work for the poor. In some cases, it may take market-like mechanisms, as Nachiket shows. But in other cases, it would require changing the "politics" leg of the long route. By the way, vouchers are unlikely to work not because of supply-demand mismatch, but because they undermine the rents of public school teachers (who now have to compete with private schools in order to get paid). But unless we are able to overcome this resistance, poor people will continue to be forced into the short route. Shanta

Thank you very much for this very informative post. I am very new to the debate on public services, so pls forgive me if my questions are the ones long answered in the experts circles. I do wonder, however, what are your views on more kind of structural macro-economic challenges for providing services for people. Bering in mind that money is not the golden thread or the SOLUTION it is still impossible to deliver services for poor people without the proper financing. I would be very interested to learn what are your views on the fiscal and monetary policies and the role they can play in supporting service delivery. Also within the context of the private sector, I do agree there is no ‘either or’, yet one should be careful about the ‘straightforward’ advocacy hence we have seen the biased results it can produce, for example when relying on the private sector to generate employment. Nevertheless, I would be very keen to learn more about the private sector in service delivery. Can anyone help me by pointing to good sources (but more global or regional rather than national) that illustrate the trends, private vs public ? Many thanks!